Vodafone 2007 Annual Report Download - page 35

Vodafone Group Plc Annual Report 2007 33
Performance
Key Performance Indicators
The Board and the Executive Committee monitor the
Group’s progress against its strategic objectives and the
financial performance of the Group’s operations on a
regular basis. Performance is assessed against the
strategy, budgets and forecasts using financial and
non-financial measures.
The following section details the most significant Key
Performance Indicators (“KPIs”) used by the Group,
describing their purpose, the basis of calculation and
the source of the underlying data. Definitions of the
key terms are provided on page 159.
Financial
The Group uses the following primary measures to assess the performance
of the Group and its individual businesses. A number of these measures at a
Group level are presented on an organic basis, which provides an
assessment of underlying growth excluding the effect of business
acquisitions and disposals and changes in exchange rates. Financial
measures presented on an organic basis are non-GAAP financial measures.
For more information on these measures and the basis of calculation of
organic growth see “Performance – Non-GAAP Information” on page 62.
Revenue
Revenue and its growth for the Group, and its regions, covering the 2007,
2006 and 2005 financial years, is reviewed in “Performance – Operating
Results” on pages 34 to 51.
Revenue and revenue growth are used for internal performance analysis and
by investors to assess progress against outlook statements provided
externally by the Group.
Adjusted operating profit
Adjusted operating profit is used by the Group for internal performance
analysis as it represents the underlying operating profitability of the Group’s
businesses. The measure is presented both for the Group and its regions,
covering the 2007, 2006 and 2005 financial years, in “Performance –
Operating Results” on pages 34 to 51. The basis of calculation, along with
an analysis of why the Group believes it is a useful measure, is provided in
the section titled “Performance – Non-GAAP Information” on page 62.
Free cash flow
Free cash flow provides an evaluation of the Group’s liquidity and the cash
generated by the Group’s operations. The calculation of free cash flow,
along with an analysis of why the Group believes it is a useful measure, is
provided in the section titled “Performance – Non-GAAP Information” on
page 62. The Group has provided an outlook for free cash flow in the 2008
financial year on page 59.
Operational
Certain operational measures relating to customers and revenue for the
Group and its regions, covering the 2007, 2006 and 2005 financial years, are
provided in “Performance – Operating Results” on pages 34 to 51, with the
exception of customer delight. These measures are commonly used in the
mobile communications industry.
Customers
The Group highly values its customers and strives to delight them. As a result,
customer based KPIs are important measures for internal performance
analysis. Management also believes that some of these measures provide
useful information for investors regarding the success of the Group’s
customer acquisition and retention activities. For customer numbers and
churn, the data used to calculate the KPIs is derived from the customer
relationship management systems of each of the Group’s operations.
Customer numbers
The Group prepares customer numbers on a venture, proportionate and
controlled or jointly controlled basis for its mobile operations. A summary of
the customer numbers on all bases is presented in “Business Overview –
Where We Operate” on page 13.
Churn
Churn represents the disconnection rate of customers in each of the Group’s
mobile operations. It is calculated as the total gross customer disconnections
in the period divided by the average total customers in the period. Churn rates
stated in this Annual Report are calculated for the entire financial year.
Customer delight
The Group uses a proprietary ‘customer delight’ system to track customer
satisfaction across its controlled markets and jointly controlled market in
Italy. More information on the benefits of the system are provided in
“Business Overview – How We Deliver Our Services” on page 17.
Customer delight is measured by an index based on the results of surveys
performed by an external research company which cover all aspects of
service provided by Vodafone and incorporates the results of the relative
satisfaction of the competitors’ customers. An overall index for the Group is
calculated by weighting the results for each of the Group’s operations based
on service revenue.
Increased customer expectations are putting a downward pressure on
customer satisfaction for the Group and many of its competitors. Despite
this trend, the Group outperformed its target for customer delight in the
2007 financial year and the index was broadly stable compared to the
previous financial year.
Revenue based measures
Management believes that revenue based measures provide useful
information for investors regarding trends in customer revenue derived from
mobile communications services and the extent to which customers use
mobile services.
The data used to calculate these KPIs is derived from a number of sources.
Financial information, such as service revenue, is extracted from the Group’s
financial systems, whilst operational information, including customer and
usage metrics, is derived from the customer relationship management and
billing systems of each of the Group’s operations.
Average revenue per user (“ARPU”)
ARPU represents the average revenue by customers over a period and is
calculated as service revenue, being total revenue excluding equipment
revenue and connection fees, divided by the weighted average number of
customers during the period. ARPU disclosed in this Annual Report is
presented on a monthly basis and represents the total ARPU for the
financial year divided by twelve.
Voice usage
Voice usage is the total number of minutes of voice use on the Group’s
mobile networks, including calls made by the Group’s customers, often
referred to as outgoing usage, and calls received by the Group’s customers,
often referred to as incoming usage.
Messaging and data revenue
Messaging and data revenue represent the non-voice element of service
revenue. In recent years, these revenues have grown at a faster rate than voice
revenue as customers increasingly use these services and new products and
services have been launched. As competition has intensified in many of the
markets in which the Group operates and penetration rates have increased,
the ability of the Group to grow messaging and data revenue has become an
increasingly important factor, internally and for investors.
Costs
Europe targets
The Group has set targets in respect of revenue market share, operating
expenses and capitalised fixed asset additions. Progress against the revenue
market share target is measured by tracking performance in Germany, Italy,
Spain and the UK against their principal competitors. The operating expense
and capitalised fixed asset additions targets relate to the Europe region and
common functions in aggregate. These targets are discussed in more detail
on pages 38 to 39.